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Mexico estimates $10bn of laundered money enters the country each year

Mexico has imposed limits on the use of US dollars in an attempt to limit money-laundering by drug traffickers.

Mexicans who don't have bank accounts will be able to exchange only up to $1,500 (£1,000) a month.

Those with accounts could change a maximum of $4,000.

The Mexican treasury estimates that $10bn of laundered money enters the country's banking system each year, fuelling drug-related violence.

The last few days have seen a surge in drug-related killings in the country.

In the latest bloodshed, at least 14 suspected drug cartel gunmen were killed in a clash with the army in the town of Taxco, south of Mexico City.

Dirty money

"This measure is consistent with a strategy of fighting not just drug trafficking but also organised crime," said Treasury Secretary Ernesto Cordero.

"We have to close the way to dollars from sources that may be illegal."

The new law applies to currency exchange and cash deposits, but no limits will be placed on the purchase of dollars.

Businesses that work in tourism or close to the US border will be able to deposit up to $7,000 a month.

The illegal flow of billions of dollars from the US is fuelling Mexico's escalating drugs war, the government says.

Huge incomes allow the drugs gangs to buy advanced weaponry to fight the security forces and each other.

Further bloodshed

At least 23,000 people have been killed in drug-related violence in Mexico since December 2006, when President Calderon ordered the army and federal police to combat the cartels.

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Mexico's police are sometimes outgunned by the cartels

In Tuesday's violence in Taxco, the army said soldiers returned fire when they were attacked by gunmen, and later seized guns and grenades.

Taxco in Guerrero state is a colonial-era silver mining town that is popular with tourists, but the region is a focus for turf wars between rival drugs gangs.

Last month a mass grave with 55 bodies was discovered in an abandoned mineshaft outside the town.

On Monday, 12 federal police officers were killed in an ambush in the western state of Michoacan, and at least 29 inmates died in fighting between rival gangs in a prison in the north-western state of Sinaloa.

And last Friday more than 40 people were killed in separate incidents.

Critics of President Felipe Calderon say his policy of using troops to fight the cartels has only worsened the violence, without stopping the flow of drugs.

But on Monday Mr Calderon defended his strategy in an article published on the presidency website and in several newspapers.

"I am convinced that we would be in a much worse situation if we had not decided to take on the criminals," Mr Calderon wrote.

"If we remain with our arms crossed, we will remain in the grip of organised crime, we will always live in fear, our children will have no future, there will be more violence and we will lose our freedom."